A Certainty Equivalent Valuation of Social Security Entitlements

Sylvain Catherine ()

No 1086, HEC Research Papers Series from HEC Paris

Abstract: This paper computes the certainty equivalent of the United States Social Security in a calibrated life-cycle model when the stock and labor markets are cointegrated. In the baseline calibration, the certainty equivalent of current workers and retirees is found to be 37% lower at the national scale than the sum of expected cash flows discounted at the risk-free rate. The results suggest that the present value of pension entitlements and the transition cost to a funded system may be largely overestimated if not properly risk-adjusted.

Keywords: Household finance; Social Security; Public liabilities; Portfolio choices (search for similar items in EconPapers)
JEL-codes: D91 G11 G18 H55 H60 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2015-02-13
New Economics Papers: this item is included in nep-age
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1086

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